From Renting to Home Ownership

By Theresa Grant Real Estate Columnist Home ownership can seem like an impossible dream for some, and others have it on their must achieve by a certain age, list. As with all things in life, it’s better to know all the ins and outs of attaining home ownership so you can make an informed decision as to whether or not it’s for you. What will you need and where do you start? Well, if you have family members or a close friend that could share their journey to home ownership with you, that is great. If, however you don’t, it’s always best to consult with a professional. A Realtor, a Mortgage Broker, or a Financial Services agent, can all help you map out a plan to home ownership. Very often the institution that you bank with will be more than happy to set you up with a free consultation to discuss what exactly you are looking to achieve and then help you to get started on the exciting path to home ownership. The two biggest things needed are an income that will comfortably cover not just your mortgage but all of your expenses, and a good credit rating. The lending institution will look at how much you make versus how much you owe to creditors. This is called the debt service ratio. There are two calculations when lenders are running the numbers. They first look at your income as it relates to covering the mortgage, property taxes and the heating of the property. If you are wanting to purchase a condo, half of the condo fees are also included in this calculation. This initial figure cannot exceed 39% of your income. The second calculation is more encompassing. It involves all of your debts like car loan, line of credit, credit cards, anything you have financing on. Given that this calculation is broader and takes everything into account, it stands to reason that his number would be higher. This number comes in at 44% of your income. These figures are based on Canada Mortgage and Housing guidelines. Take a look at your credit report. If it’s good, then just keep doing what you’ve been doing. If it’s less than stellar, there are a few things that may be affecting it negatively that you can change. Making your payments on time is a big one. Creditors like to see that you take the repayment of your debt seriously and make your payments responsibly. Utilization of your available credit is another big one. If a lender sees that you are almost maxed out on your cards, even if you pay them every month, it tells the lender you rely on the cards heavily. The more you can pay down on your loans and cards, the higher your score will go. It can be a good idea to sit down a year or so before you want to purchase and make a check list. It could look like this, pay off the lowest balance of at least one credit card. Make sure all payments over the next year are on time. Do not take any new credit cards or loans out over the next year. Pay off anything you can but leave the account open. The reason you leave the account open is because it shows lenders that you have the credit available to you, but you don’t need to utilize it. You will need a down payment. That will be whatever you can save after paying all of your expenses. Often people will move from their nice large apartment with all the amenities, to a much smaller space with no amenities to be able to save for a down payment for a year or two. The minimum requirement for a down payment in Ontario is 5% of the purchase price of the home. There are many things to take into consideration when it comes to home ownership and how to attain it. Listen, ask questions, and always consult a professional. Questions? Column ideas? You can email me at newspaper@ocentral.com